Govt mulls fuel rate cut after airlines toe line

New Delhi / Mumbai: In a quid pro quo of sorts, the government said it would consider a rationalization of jet fuel prices if the country’s airlines, bleeding under the cost of fuel and slowing passenger traffic, do not lay off employees.

Statements hinting that a cut in the cost of jet fuel or aviation turbine fuel (ATF) was in the offing, and that the oil companies would go slow on recovering dues from airlines for fuel sales were made by the civil aviation minister Praful Patel and petroleum and natural gas minister Murli Deora, and came a day after the country’s largest airline by passengers flown, Jet Airways (India) Ltd, reversed a decision to lay off 1,900 employees, a move that provoked outrage among the workers and evoked strong reactions from politicians, including the Union labour minister.

Jet fuel accounts for around 45-55% of the operating costs of airlines in India and costs 70% more in the country than in foreign markets because of multiple taxes, including one levied by the states. Around 4.7 million tonnes of jet fuel is sold in the country every year and domestic airlines consume half of this. Mint reported on Friday that India’s airlines owe oil companies around Rs1,800 crore over and above the credit limit they have with these firms.

“I told him (Naresh Goyal, the chairman of Jet Airways) that until and unless you create an atmosphere for the government to consider your demand (of rationalizing ATF prices), we cannot be pushing it. A committee headed by the cabinet secretary (K.M. Chandrashekhar) is looking at it. Everybody has to understand that industry is in trouble,” Patel said.

Independently, Deora and a senior member of the parliamentary standing committee on transport, tourism and culture, who did not wish to be named, confirmed that a move was afoot to rationalize ATF prices.

“There is a chance of rationalizing ATF prices. It will be worked out between the ministries,” Deora said. Key Opposition parties said the move had their conditional support.

Sitaram Yechury, a member of the Communist Party of India (Marxist) said: “It (ATF price rationalization) should be neutral to all players. However, first the prices of diesel and petrol should be brought down, which should be followed by ATF price rationalization.”

“I am not aware that the government is considering rationalization of jet fuel taxes. If it happens, it will not only help us, but also (the) entire aviation (industry),” said a Jet Airways executive, who asked not to be named given the controversy surrounding the airline’s initial decision to fire 1,900 employees that was subsequently rescinded.

India’s airlines, including Jet, are expected to end this year with aggregate losses of around $2 billion (Rs9,740 crore), up from last year’s losses of around $1 billion.

A paper released by consulting and research firm Deloitte, on 16 October at the Hyderabad Air Show, said rising fuel prices affect an airline’s profitability and have a cascading effect on the other support services. Government levies on ATF work out to around 35%, including an import duty (20%) and an excise duty (8%). Recommending a uniform tax, Deloitte said one option would be to reduce the excise duty to 4% and to undertake measures to remove the disparity in taxes levied by states.

“ATF may be put under declared goods category to bring about uniformity in levy of sales tax. The government can also allow airlines to import ATF to reduce the cost by almost 25% than what the airlines are paying oil companies,” the paper said.

Kingfisher Airlines Ltd is in talks with Reliance Industries Ltd and other state-run oil marketing firms to import ATF. “The application for the same is stuck with the government,” said a Kingfisher Airlines executive, who asked not to be named because he is not authorized to speak to the media.

A. Raghunathan, chief financial officer of the UB Group-owned airline said: “Our fuel bill per month is around Rs200 crore. Therefore, what ever percentage is the reduction in the ATF prices — that should be our relief.”

Earlier this week, the government threw in its lot with that of the sacked employees of Jet. Elections to five key states are to be held in the next two months ahead of Lok Sabha elections that are scheduled for next year.

Patel contradicted Goyal, who said the airline had unilaterally decided to reverse its initial decision on the layoffs. The minister said the decision was due to the government’s intervention. The Jet Airways executive quoted in the first instance said the decision was not “motivated by any political pressure”.

“Had Jet not taken back the employees, they would have faced consequences,” said a minister, who did not want to be identified.

“We support the civil aviation ministry’s proposal. The oil companies and airlines will work together to sort out their differences. Even Vijay Mallya (chairman of Kingfisher Airlines) spoke to me and promised that he will not lay off employees. If airlines lay off employees, they will not have my support,” said Deora.